Arbuzovskoye well 112 has been successfully tested at an initial rate of 140 bopd with no visible water cut. The well is currently shut-in for long term pressure build up testing before it is put into long-term production.

Arbuzovskoye well 105, the next well in the drilling sequence, is currently drilling ahead.

Well 112 is the fifth new production well in the Arbuzovskoye oil field and to date each well has displayed little or no visible water cut. Overall, the average initial production rates from the first five wells in the programme have exceeded targets of 150-200 bopd per well.

This winter, the Company has faced unusually extreme temperatures at Licence 61, reaching as low as -49 degrees Celsius, which has slowed operations significantly.

In recent weeks, the Company has encountered mechanical production issues at Arbuzovskoye which have impacted on production rates in two wells. The reduced output may be due to migration of fine grained materials that are gradually plugging the well bore which can be rectified with a simple workover. We are also investigating possible pressure depletion in the reservoir, which can be addressed with a planned pressure maintenance programme. The net impact is a reduction of overall production by 300 bopd. The pressure build up test of the 112 well should assist in determining which is the more likely cause of the reduced rates and we will factor the results of this into future workover and water injection plans.

Arbuzovskoye contains 2P reserves in excess of 13 million barrels of oil according to independent reserve auditors Ryder Scott and is the Company's second field being developed.

Licence 61 - Production

Total oil production, comprising both the Lineynoye and Arbuzovskoye oil fields is currently 2,600 bopd. This rate does not include any production from well 112 which is currently shut-in for long term pressure build-up testing, or the 300 bopd currently lost from the two Arbuzovskoye wells.